CFDs are complex financial instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money. CFDs are complex financial instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.

GBP/USD: what will happen to cable after the election?

The pound has surged ahead of the UK election based on the Conservative Party securing a majority, but anything other than this outcome will bring a significant downside for sterling.

Sterling strength has been intrinsically linked with the likeliness of a conservative victory over the course of 2019, with the rise in polling helping drive GBP/USD higher as we head into the election.

That signals a likely surge for the pound in the event of a conservative majority, despite the ultimate uncertainty that will come in relation to Johnson’s potential inability to achieve a trade deal by the end of 2020.

Looking to trade GBP/USD and other currency pairs? Open a live or demo account with IG.

Conservative majority could see GBP/USD hit new high

A conservative majority would be expected to bring a surge for GBP/USD, driving the pair into a new 2019 high above the 1.3382 peak from March.

On the flip-side, anything other than a Conservative victory would likely bring substantial downside for the pound. Should we see a hung parliament, the likeliness is that we would be looking at a move back towards the 1.270 lows in the immediate aftermath.

This would be in response to the immediate uncertainty involved, either a Labour led coalition coming to pass, or a Conservative coalition which would likely require the scrapping of the current Brexit deal. Therefore, the aftermath would likely depend on exactly who will form a government.

Labour victory could see sterling plummet

Finally, we would likely see a sharp decline in the pound in the event of a Labour victory, with the prospect of capital flight hurting the economic outlook going forward.

That short-term decline would similarly point towards a possible move back into the 1.270 November lows and even back down to 1.250.

However, those losses could be lessened in time if a coalition was formed that may reduce the severity of future tax hikes. It is also worth noting that a likely second referendum would signal a pound positive reversal of article 50 or softer form of Brexit.

You can long or short GBP/USD with IG using derivatives like CFDs.

This information has been prepared by IG, a trading name of IG Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.
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